For the 44 million American consumers who struggle with a still-growing student loan debt of $1.4 trillion, the problems wrought by debt collectors and loan servicers is a nagging problem. Servicer changes and errors, unexplained fees that worsen the debt and difficulty in securing income-based repayment plans are all painfully familiar to these consumers.
These debts are particularly onerous for black Americans who utilize federal student loans more than other races or ethnicities: 87 percent. By comparison, Latinos borrow 65 percent of the time and Whites even lower at 60 percent, according to data from the Center for American Progress.
So, one must wonder why Betsy DeVos, the secretary of Education, would draft a plan that would once again favor these companies instead of consumers. These are the same companies that receive $1 billion in taxpayer dollars to service and collect loan debts.
In recent days, multiple news outlets have reported an Education plan that proposes to preempt state laws that allow state attorneys general (AGs) to hold debt collectors and loan servicers accountable.
Just last October, a bipartisan group of 26 AGs wrote Secretary DeVos and advised against giving these businesses immunity from state-level oversight and enforcement. Citing fraud and abusive practices, the AGs spoke directly to the harms that would be caused to students and borrowers. They also urged that state and federal officials work together to end the harmful practices of bad actors in the student loan industry.
“[E]very state has well-established laws prohibiting companies – many of which are also regulated federally – from engaging in unfair and deceptive practices targeting state residents,” wrote the AGs on October 23. “The Industry Requests, however, seek to enlist the department in an industry gambit to evade state policing. There is no principled reason for this result, especially in the middle of a crisis demanding cooperation across government.”
In addition to the AGs, other federal offices have respectively found problems with these companies as well.
For two consecutive years, 2015 and 2016, the federal Government Accountability Office found failures by student loan servicers that include not providing information to borrowers about their payment options and difficulty reaching servicers. The Consumer Financial Protection Bureau (CFPB) has worked with states and the Department of Justice to hold accountable the nation’s largest servicer of federal student loans, Navient. In early 2017, CFPB sued the company for steering student loan borrowers into costly forbearance agreements that pad interest costs instead of enrolling borrowers in income-based repayments.
Similarly, Massachusetts sued the Pennsylvania Higher Education Assistance Agency and the National Collegiate Student Loan Trust for overcharging student borrowers. That lawsuit alleged that although PHEAA was aware of the payment problems, it failed to rectify related borrower harms.
“Given the Education Department’s utterly lackluster record of oversight,” said Persis Yu, an attorney with the National Consumer Law Center and director of its Student Loan Borrower Assistance Project, “it should be doing more to work with states to protect the interests of student loan borrowers…Congress envisioned a role for states to play in protecting student loan borrowers. And given the Education Department’s record of siding with servicers over borrowers, the state role is more critical now than ever.”
A CFPB report, also released in October 2017, analyzed student loan complaints on a state-by-state basis. With more than 50,000 complaints filed with the Bureau, poor student loan servicing and servicing errors were frequently reported. The number of complaints were markedly rising in California, Florida, Georgia, Illinois, New York, Ohio, Texas and Pennsylvania.
“This kind of caving to special interests abandons the department’s duty to be a thrifty steward of the public purse,” said Whitney Barkley-Denney, a senior policy counsel with the Center for Responsible Lending. “Consumers are entitled to support and response from all levels of government. Hence, states must preserve their ability to protect borrowers residing in their respective jurisdictions.”
“There is simply no precedent or provision for such a federal fiat,” concluded Barkley-Denney.
Charlene Crowell is the Center for Responsible Lending’s Communications deputy director. She can be reached at Charlene.firstname.lastname@example.org.